Is it really Real Estate Investing? By Darrin Carey

Real Estate Investing is a very broad term and includes an almost bewildering array of options. Let’s take a closer look at the concept of real estate investing.

The definition of investing is “to put (money) to use, in something offering potential profitable returns, as interest, income, or appreciation in value”. Real estate investing frequently includes far more than just investing. It also includes running your real estate business. This is where many people become disillusioned or frustrated.

Compare real estate to the stock market. When you invest in a stock the market tells you the current price. You can only decide to buy or sell, and at what price. You generally can’t buy stock at a discount to its current price, or make improvements to increase the value of your stock. Real estate allows you to buy at a discount, and then use your personal knowledge, skills, and efforts to create additional value. You are in control. On the other hand, your stocks don’t ask you to deal with contractors, advertising, tenants, or vacancies. Your stock portfolio doesn’t ask for additional money to fix a roof or a water heater. When is the last time your stock called you on a Saturday afternoon because the furnace didn’t work? A stock is a pure investment. Real Estate investing is really a business that MAY also involve an investment.

As a business, your results are based on your efforts and decisions. To make good decisions, you need to understand that Real Estate Investing is a business and needs to be treated as one. Compare the most common real estate businesses to other non-real estate businesses. If you are wholesaling, you’re a distributor. Retailing is primarily the construction business. Landlording is the rental business (big surprise!). You are running a business. Your business simply has an expensive product in a fixed location.

Don’t let the terminology mislead you. Most people who think they are Real Estate Investors are really running a Real Estate Business.

A Real Estate Business

Running a business takes a combination of resources: knowledge, time, and money. It’s a rare person that starts with all three. The reason most businesses fail is the lack of money.

Knowledge can be hired, but it’s very hard to evaluate and hire what you don’t know. Instead, most people learn what they need from experience, books, classes, and specialized seminars.

Time can be hired on a limited basis. You hire general help to do routine tasks, such as marketing campaigns, or answering phones. You can hire specialists to run a specific aspect of your business, such as property management or rehab management. A wholesaler on your team saves you time finding deals. You will need to focus on the critical few tasks that must be done by you. Most businesses start with the founder putting in a lot of time. You will always need more time than you think.

Money can be accessed to put a business together. There are a variety of conventional and unconventional means of doing this. In the real estate business, it is common to use conventional banks, and lines of credit. Also commonly used are Hard Money Lenders, Private Lenders, and Private Investors. Obviously this increases your business costs. Is it ok to make less, because you had to borrow the funds? Is it better to make nothing at all?

A Real Estate Investor

Is it possible to be a Real Estate Investor without running a full blown Real Estate Business? Yes, look to our original definition of an investor. In the stock market, Real Estate companies are often structured as REITs. Local Real Estate businesses are almost always seeking funds for another project. Private Lenders and Private Investors are often the preferred means of putting the projects together. Private agreements may include interest, equity, profit sharing, or any combination that is agreeable to all.

Which resources do you have available? Which can you get? What returns do you need, and when? Those answers will tell you which of the many choices are best for you.